The convergence of advanced technology and sophisticated tactics by malicious actors continues to redefine the fraud landscape. According to IBM’s 2024 Cost of a Data Breach report, Canadian organisations pay an average cost of $6.32 million per data breach. From elaborate schemes to the exploitation of digital infrastructure, fraud methodologies have grown increasingly formidable. Indeed, as predictions of an economic downturn continue, it can lead to a perfect storm of the fraud triangle elements: opportunity, motivation and rationalisation.

This article examines some of the circumstances that allow fraud to occur, the motivation and rationalisation for committing it and how best to position your company to mitigate the top five fraud risks in 2025.

1. AI and ML fraud

The rise of artificial intelligence (AI) and machine learning (ML) has not only transformed industries but paved the way for increased vulnerabilities in the fight against fraud. Cyber criminals leverage these technologies to carry out complex schemes, making fraud detection more challenging than ever. An emerging threat is the use of GPT-based language models by bad actors to craft compelling phishing emails. Unlike traditional haphazardly written emails, these messages feature refined grammar, compelling narratives and personalised content, increasing the likelihood of deception.

Similarly, threat actors are deploying AI-generated code to automate spamming and execute system attacks with greater precision.

Another growing risk is using of deepfake technology to impersonate authorised individuals, enabling fraudsters to bypass security protocols and gain unauthorised access to accounts or systems. These hyper-realistic video and audio forgeries can be used to manipulate unwitting individuals into fraudulent business transactions or extract sensitive information.

Educating oneself remains the best defence. Raise awareness about these evolving threats to help businesses stay vigilant. Authentication of identities and instructions is crucial, particularly for significant transactions. Secure, multi-channel verification processes should be used to confirm high-value or sensitive requests.

As fraud tactics become more technologically advanced, so too must our defences. AI and ML can also be harnessed to strengthen security, creating multiple layers of defence that integrate with human oversight.

2. Predator fraud

As economic pressures persist, there has been a notable rise in predator frauds throughout 2024, which is expected to continue into 2025. Predator frauds include employment scams and investment frauds, which take advantage of individuals in difficult financial circumstances seeking opportunities to alleviate their financial burdens. Or, it is simply a matter of human nature - greed.

Investment fraud:

Investment fraud is the most common consumer financially devastating form of deception. According to the Canadian Anti-Fraud Centre (CAFC), investment fraud losses $310.6 million in 2024. According to CPA Canada, a majority of investment fraud activities are associated with cryptocurrency investment platforms. Investors are enticed to make small investments, which supposedly quickly earn high returns.

When they demand the return of their funds, they face the sad reality that the investment platform is fraudulent and their money is gone.

To mitigate the risk of falling victim to investment fraud, businesses and individuals can adopt precautionary measures:
 

• Conduct thorough research - Perform online research on the digital asset, the investment company and the adviser before investing in cryptocurrencies or with foreign trading platforms. Search for credible reviews and investigate complaints
• Confirm whether the investment platform and adviser are appropriately regulated and registered with the relevant regulators. For example, are they listed on the Canadian Securities Administrators' 'Are they registered?' roster? Have they been subject to any disciplinary action?
• Maintain realistic expectations - Understand that no investment can be guaranteed to provide significant profits. If it's too good to be true, it probably is.

Employment fraud:

According to CAFC, fake employment schemes accounted for more than $34.5 million in reported losses in 2024. These schemes typically involve sophisticated tactics designed to deceive victims, enticing them with seemingly legitimate job opportunities. Fake employers often initiate contact through interview requests, followed by demands for personal information (supposedly for background checks).

Once armed with personal identity details, predators can take over bank accounts or apply for new credit cards or loans. Some job frauds promise easy access to supposed high-income opportunities but require an upfront 'application fee.'

To combat employment scams, consider the following steps:
 

• Conduct online background research, looking for reviews of the purported employer from credible sources. Search for the company or individual offering the job alongside keywords such as 'scam,' 'review,' or 'complaint.' See whether others have reported instances of being defrauded by the same entity
• Avoid clicking hyperlinks embedded in unsolicited texts, emails or social media messages, regardless of any apparent association with a known company
• Exercise caution against any requests for upfront payment to secure a job. Be wary of schemes requiring payment or advances (particularly cryptocurrency transfers) as prerequisites for employment.

 

3. Employee fraud

Over recent years, we have seen examples of people's resilience in the face of hardships. But what happens when too many obstacles are thrown our way? Sometimes, people under pressure will do things that ought not to be done. With the recent rising prices of just about everything and the looming threat of economic recession, people may be more likely to find other (less ethical) means of ‘earning’ income.

We are now accustomed to making our data tables from our dining tables and preparing bank reconciliations from our bedrooms, which is why it's crucial to be mindful of changes to how we work to combat employee fraud.

To mitigate employee fraud risks, we should modify our internal controls and implement different types of management oversight. With remote working, it may be easier to abuse the present controls, falsify or bypass approvals, or forgo asking questions when things aren't adding up. It is essential to remain vigilant and ensure the company's integrity isn't compromised. As our working arrangements evolve, we must remember those at their desks and dens.

4. Supply chain fraud

Supply chain disruptions have become commonplace for everything from groceries to automobiles to building materials. As a result of these issues, it has become more difficult and costly to obtain certain products. Supply chain problems have affected every individual and industry in some way. In these difficult and expensive times, people may be more likely to get creative with sourcing products, parts and materials. Supply chain fraud includes bribery, misrepresentation of goods, financial fraud, violation of sanctions and bid rigging.

Businesses can do the following to mitigate these fraud risks:
 

• Conduct risk-based due diligence to ensure that distributors, business partners and agents are held to a high standard of conduct
• Examine the business hierarchy and procedures to gain approvals
• Develop and enhance fraud and corruption controls through risk assessments, including accounting controls, training, policies and procedures
• Test transactions and controls using independent and objective sources familiar with the business, industry, culture, practice and regulations
• Conduct, re-evaluate and refresh fraud and corruption risk assessments regularly to ensure the systems are continuously updated and reinforced.

To keep fraud at bay, organisations must continuously examine and enhance risk management systems to ensure they are well-positioned to prevent, detect and, if needed, fight fraud. Maintaining the order of business and its supply chain is the best way to ensure that they continue to thrive, and the company continues to succeed in serving others.

5. Insurance fraud

Due to the financial aftermath of the pandemic, along with the threat of a possible recession, insurance fraud will be on high alert in 2025. Some companies or individuals may resort to providing inaccurate or misleading information to obtain insurance coverage. According to a Friss Insurance Fraud Report, some of the top schemes perpetrated have included false injuries, nondisclosure of relevant information, staged accidents and submitting multiple claims for the same incident.

Fraudulent insurance claims impact honest customers and the public. As a result, businesses can suffer indirect economic losses, valuable public service resources are used and insurance companies will bear the financial brunt. In addition, fraud of this kind tends to have a ripple effect and quickly leads to higher premiums.
 

How BDO can help

At BDO, we're committed to helping business owners understand where fraudulent activity may occur in their organisation, quantify any potential losses a business may have suffered and discuss the mitigating measures they can implement to combat it.

Please reach out to your local BDO firm’s experts for more information about fraud protection and detection for your organisation.

Original content provided by BDO Canada.